IMF pleads for cash to avert crises
Monday 14 September 1998
The IMF has just $10bn to $12bn in "lendable" resources. To put this in perspective, Russia spent $4bn in a matter of days in a futile attempt to prop up the rouble.
Speaking at the launch of the IMF's 1998 annual report, an official said there was a pressing need for the US House of Representatives to approve an increase in contributions. "The major problem is the lack of action in the House," he said.
The official said the "general feeling" was that the proposed increase would come through. But he added that if the additional contribution failed to materialise, the IMF would have to explore other options, such as entering into bilateral borrowing arrangements with individual governments as it did in the late-1970s and early-1980s.
In the year ending April 1998 - before the latest Fund assistance to Russia - member countries drew nearly $26bn from the IMF's general resources account, nearly four times the level of the previous year.
The IMF said: "The Asian financial crisis that broke out in July 1997 in Thailand, and its subsequent global reverberations, dominated the IMF's work. The crisis prompted a record level of IMF lending in 1997/98, adding immediacy to the need to strengthen the financial resources of the institution to enable it to continue playing a fully effective role."
The unprecedented level of financial assistance given by the IMF over the past year has prompted concerns about what would happen if the so- called "lender of last resort" were to run out of cash itself. An IMF official said the Fund will have about $25bn of uncommitted resources, after the assistance given to Russia. However, the IMF would be unwilling to lend all of this, as it needs some cash to pay back creditors who decide to withdraw their deposits.
The Fund's liquidity ratio is an estimated 29 per cent, meaning that the financial difficulties are on a par, if not worse, than the funding problems experienced in the late 1970s.
In its annual report, the IMF called the Asian crisis "one of the worst in the post-war period". Officials said they expected some trimming of the Fund's global growth predictions in its World Economic Outlook (WEO), due for release at the end of the month, but declined to provide details.
The IMF blamed the Asian crisis on a combination of elements, including a build-up of inflationary pressures, inappropriate exchange rate policies, unhedged external borrowing, lax enforcement of rules and weak supervision.
External factors were also to blame. The IMF said: "Foreign investors under-estimated the risk associated with their search for high yields, and contagion effects of the crisis led to an excessive devaluation of the affected currencies."
At the report launch, an official played down the problem of the so-called "moral hazard" - that is, where a country does not do all it can to solve crises because it knows the IMF will step into help. The issue has concerned members of the US House of Representatives.
But the official said: "We understand the concerns. But from a government's point of view it is not going to adopt policies which are not conducive to economic health."
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